Pennsylvania has a state income tax, and it applies to most residents and workers

Yes, Pennsylvania charges a state income tax. The tax rate is a flat 3.07 percent on wages, salaries, and other earned income. This rate applies to everyone in the state — there are no brackets that change based on how much you earn. Pennsylvania also taxes investment income, retirement distributions, and business profits, though the rules vary by income type.

The state does not tax Social Security benefits, and it does not tax certain retirement income like military pensions and some public employee pensions. But if you work in Pennsylvania or live there, you will owe state income tax on your wages unless you fall into a narrow exception.

Key Takeaways

  • Pennsylvania's state income tax rate is a flat 3.07 percent on wages and salaries, with no variation based on income level.
  • Social Security benefits are not taxed by Pennsylvania, and certain pensions including military pensions are exempt.
  • If you work in Pennsylvania but live elsewhere, you may still owe Pennsylvania income tax on those wages.
  • Pennsylvania does not have a local income tax, so your only state-level income tax is the 3.07 percent rate.

Who has to pay Pennsylvania income tax

You owe Pennsylvania income tax if you are a resident of the state or if you earned income while working in Pennsylvania. Residency is determined by where you maintain a permanent home — not where you spend the most time. If you moved to Pennsylvania during the year, you owe tax on income earned after you became a resident.

Non-residents who work in Pennsylvania owe tax only on the income they earned in the state. If you live in New Jersey and work in Pennsylvania, for example, you file a Pennsylvania return on your Pennsylvania wages and a New Jersey return on any other income. Some states have reciprocal agreements that let you avoid double taxation, but Pennsylvania does not have these agreements with most neighboring states.

What income is taxed at the 3.07 percent rate

The flat 3.07 percent rate applies to wages, salaries, tips, and other compensation from employment. It also applies to net profit from self-employment and business income. If you are an employee, your employer withholds the tax from your paycheck — you will see it listed as "PA" or "PA income tax" on your pay stub.

Pennsylvania taxes interest and dividend income, but at different rates depending on the type. Dividends from stocks are taxed at 3.07 percent. Interest from savings accounts, bonds, and other sources is also taxed at 3.07 percent. Capital gains — profit from selling an asset — are taxed as income at 3.07 percent as well.

Income that Pennsylvania does not tax

Social Security retirement benefits are completely exempt from Pennsylvania income tax. This applies whether you receive Social Security as a retiree, as a survivor, or as a disabled worker. Supplemental Security Income (SSI) is also not taxed by the state.

Military pensions and certain public employee pensions are exempt. If you receive a pension from the U.S. military, you owe no Pennsylvania tax on it. Pensions from the Pennsylvania Public School Employees' Retirement System (PSERS) and the Pennsylvania State Employees' Retirement System (SERS) are also exempt. However, pensions from private employers and some other public systems are taxable.

Unemployment benefits are taxed by Pennsylvania at the 3.07 percent rate, so do not assume they are exempt. Workers' compensation benefits are not taxed. Gifts and inheritances are not taxed by Pennsylvania (though the federal government may tax large inheritances under different rules).

How withholding works and what to do if too much or too little is taken

Your employer withholds Pennsylvania income tax based on a form you complete when you are hired — similar to the federal W-4 form. Pennsylvania uses a PA-W4 form to calculate withholding. If you have multiple jobs, receive income from self-employment, or have significant non-wage income, you may need to adjust your withholding to avoid owing money at tax time.

You can file a new PA-W4 with your employer at any time to change your withholding. If you expect to owe money, you can increase withholding. If you expect a refund, you can decrease it. Self-employed workers and those with investment income typically make quarterly estimated tax payments to the state instead of relying on employer withholding.

When you file your state tax return — due April 15 of the following year, the same date as federal taxes — the state compares what you owed to what was withheld. If too much was taken, you receive a refund. If too little was taken, you owe the difference. You can file electronically or by mail using Form PA-40, the state's individual income tax return.

Pennsylvania has no local income tax, but other states do

Pennsylvania does not allow cities or counties to charge their own income tax. Your only state-level income tax obligation is the 3.07 percent to the state itself. Some states — including Ohio, Maryland, and New York — allow local jurisdictions to add their own income tax on top of the state rate, but Pennsylvania does not.

Property taxes and sales taxes vary by county and municipality in Pennsylvania, but income tax does not. This means your Pennsylvania income tax bill is the same whether you live in Philadelphia or a rural area.

Frequently Asked Questions

Do I owe Pennsylvania income tax if I moved out of state during the year?

You owe Pennsylvania income tax only on income earned while you were a resident. If you moved out on June 30, you owe tax on income earned January 1 through June 30. You file a part-year resident return (Form PA-40) and report only the income earned during the months you lived in Pennsylvania.

What if I work in Pennsylvania but live in another state?

You owe Pennsylvania income tax on the wages you earned in Pennsylvania. You will file a Pennsylvania non-resident return and a return in your home state. Some states offer credits to prevent you from paying tax twice on the same income, but you need to check your home state's rules.

Are retirement account withdrawals like 401(k) and IRA distributions taxed?

Yes, distributions from traditional 401(k)s and traditional IRAs are taxed as income at 3.07 percent. Roth IRA withdrawals are not taxed if you follow the rules. Pension distributions are taxed unless they fall into an exempt category like military or PSERS pensions.

Do I have to file a Pennsylvania return if I had no income?

No. You only file if you had income during the year. If you had no wages, self-employment income, or other taxable income, you do not need to file a state return. However, if tax was withheld from your paychecks, you should file to get a refund.

Can I deduct federal income tax paid from my Pennsylvania income?

No. Pennsylvania does not allow you to deduct federal income tax, state income tax, or local taxes from your Pennsylvania taxable income. The 3.07 percent rate applies to your gross income with very few deductions available.